Struggle continues for Wellington businesses

Sarah Chambers, owner of Wellington's Little Makos Swim School, might not normally think of her business as having anything to do with the government - but she has felt the impact of public sector job cuts.

She has about 100 fewer children enrolled this year compared to last winter, and has had emails from people telling her that they are holding off due to job insecurity.

There have also been more subtle signs that people might be affected.

"A lot of people use their work email addresses to sort stuff for their kids. It's noticeable even if they haven't told me that they've gone from a .govt email address to a gmail. People who've emailed for four or five years from a .govt one… you can read between the lines without them saying."

Some families had shifted to Australia, she said, because employment options were limited.

Chambers said that had left her stuck deciding what to do with her staff. If she were to cut their hours, it could be hard to get them back - but there was a financial effect of remaining fully staffed with fewer students.

Wellington Chamber and Business Central chief executive Simon Arcus said many Wellington businesses were in a "survive til 25" holding pattern.

"Hospitality and retail are talking about a 30 percent drop in revenue. There's definitely a sense of a stall."

He said the impact of government spending cuts - which have led to the loss of more than 6000 jobs according to RNZ's calculations, and a reduction in government spending with other businesses, including Wellington professional services firms in particular - had been very broad-brush.

It should be noted that some of the jobs that have been cut were vacancies, so will not have resulted in a direct redundancy.

Arcus said while Wellington's economy was sometimes supported through downturns by the presence of the government in the capital, this time the cuts were happening on top of a wider downturn.

Westpac's latest consumer confidence survey showed Wellington confidence slipped from a reading of 90.1 in March to 79.3 in June, compared to an average of 111.4. A reading over 100 indicates optimists outnumber pessimists.

"It's a hell of a lot worse than in places like Auckland," independent economist Shamubeel Eaqub said. "In Auckland it's a private sector recession. In Wellington, it's a private and public sector recession."

Restaurant Association chief executive Marisa Bidois said Wellington businesses were finding it very tough.

"It's becoming progressively more challenging, from what we've heard. Hospitality businesses are saying with a lot of the cuts that have been happening there are less people out and about in Wellington."

The association's latest survey showed a 5.5 percent drop in sales in Wellington in the first quarter of this year compared to the same time a year earlier, after a 3.3 percent drop the previous quarter. Southland was the only other region that reported a drop by that measure, down 2.2 percent.

MBIE data shows job ads in Wellington are down 50 percent year-on-year, compared to a drop of 42 percent in Auckland and 36 percent in Canterbury. Between June 2023 and June 2024, the proportion of the population receiving Jobseeker Support increased in all regions but the largest increases were in the central Auckland and Wellington areas. In ASB's latest economic scoreboard, it noted that Wellington was the only region in the country to experience a fall in employment compared to a year earlier - down 1.9 percent.

Data also shows that Wellingtonians are holidaying less than other parts of the country. Their tourism spending in other parts of the country was down 6.4 percent year-on-year in the latest data, compared to a drop of just over 2 percent in Auckland and about 3 percent for New Zealand as a whole.

Arcus said it was not yet clear from the housing market data that people were giving up on Wellington completely. Listings numbers were up 50.3 percent in June compared to the same time a year earlier. The number of sales was down 21.5 percent but the median days to sell measure decreased by two days. Inventory was up almost 50 percent.

He said he would expect that to be a last resort.

"I think ultimately people if they can tend to hold on to their homes. If we saw an impact on the housing market that would be a sign of seriousness... it's a big deal to sell the ranch."

Corelogic chief property economist Kelvin Davidson said it was hard to believe that the cuts would have no impact at all on the property market.

Some households would be directly affected and there would also be wider insecurity, he said.

"It might actually be that in the grand scheme of things the sentiment effect is bigger than the impact of actual job cuts… It's difficult to quantify exactly how big the impact might be, and of course to distinguish it from other influences.

"Look at Auckland, for example, where central government job cuts will have been less significant, but we're also seeing house prices fall. So in a nutshell, it's definitely a real concern in Wellington, but it might not necessarily result in that market looking dramatically different from elsewhere."

Eaqub said the market would eventually adjust. "Everyone is linear in their thinking- 'if these conditions persist things will fall apart'. But will that be the case? Will we always have lots of job losses and vacancies in commercial offices? Would we not expect commercial rents to fall, would that not help clear the market? It might take time but Wellington is always going to rebound."

Arcus said there was already a sense that things might be improving a bit. Some activity had picked up again, he said, such as spending on health and safety training, which could not be avoided.

"All of us feel that it's temporary in the sense that it can't be this way forever."

He said the government would need to "do what governments of their ilk do" and pump work out to the private sector.

"That will be a great revival for Wellington, if they start to ask 'why can't the private sector be doing this work?'. That's what we're hopeful for."